Retirement is a word that runs through minds that hate their jobs or are just tired of it. Where retirement is a state where an individual is at financial inertia I.e not earning any income, I see retirement as a opportunity to create more income stream.
Retiring early would give you enough time to explore yourself as a person. Hobbies like traveling, sky diving (one I’m personally interested in) and mountain climbing might be the first ones on your list.
So if you’ve decided to quit your job to follow a passion of yours, then I have to congratulate you because I would do the same if I were in your shoes. Heck! I wouldn’t even apply for the job unless my life depended on it.
You can do all that when you can still boogie without a major back sprain but how on earth can you save so much money before that inevitable time?
The plan is easy, the dedication is not.
Step 1: Estimate your monthly expenses
Multiply by twelve and you’ll have your annual expenses. Now the thing you want to make sure is to not get in all the unnecessary stuff in your retirement budget. Just because you’re retired doesn’t mean you should spend your money like you’re earning millions.
Tackle the most important things first, which is of course food and housing (unless you eat air and live under a rock), add all other expenses that might occur from your hobbies or passion, things you might enjoy having (but do not overdo it) and then cut out all unnecessary expenses like eating out every three days or getting those expensive nails fixed. You don’t want to end up broke when you’re retired.
Step 2: Calculate how much you’ll need to survive
And what I mean by survive is to live comfortably after retirement. Now you have your annual budget, let’s say $50,000, all you need to do is make sure you have 25 to 35 (to have more room for extra expenses) times more of it before you retire plus the annual budget in cash. So technically that would be $1.25 million to 1.75 million and you still have to possess an extra $50,000 in cash.
Or another way to do that is using the 4% rule. Take your annual budget, $50,000 and divide it by 4% ($50,000÷0.04), giving you a total of $1.25 million. If you feel that your expenses might waver then you can divide your annual budget by 3% or 3.5% making it less strict.
It might take you some time to reach that amount of money and when it comes to early retirement, you don’t have time. So I suggest adding a side hustle and buying low index funds to grow your money faster. If you were to do all this with just frugality, it might not be so easy.
Step 3: live according to your budget
This is the hardest part. I advise that you don’t go binge shopping after you resign. You’re just forcing your sorry bum back to your boring job. Note that as we grow, our needs and wants change. So make sure to always readjust your budget to fit your current phase.
If you want more explanation, then read; how to retire early.
Now that we have done that, there’s one question we (you) need to answer…
When do you want to retire?
Sure, you want to retire early. Early enough to do what you want for the rest of your life without having to worry about the back pain. Maybe late thirties or early forties.
So that would lead us to another question;
What do you plan to do after resigning from your job?
Okay, fulfill those dreams and aspirations you’ve had for years. Doing all the hobbies you’ve hidden from friends, family and even coworkers.
Which will then lead to another question (forgive me for asking so many questions);
Can your hobbies be used to create a source of income?
I know I know. First I encourage you to slam those papers at your boss’s table and say those “2 words, 5 letters” at him/her, and now I’m telling you to get another thing doing.
Retirement is actually just quiting your boring job to do something more creative that pays. Well that’s the way I see it. You might find out that your love for writing is way more lucrative than you thought it could ever be. Or maybe you got sick flow when you start spitting raps (like I do) and might decide to start a music career. Probably you just wish people would be more financially free and love to talk about finance so you might decide to start up a business that aims to make people more financially stable.
You can use this to earn money so you won’t have a problem when the devil (inflation) gets out of hand. Sure, your retirement account and index funds got you covered, but there can never be anything wrong in earning more money. You have a lot of years to plan for and if you’re spending more than your budget then you’re going to go back to work soon.
If you’re planning to retire just to enjoy all the pleasures then maybe you should reconsider. I would’ve died of boredom. You can use your retirement to pursue something more rewarding.
So in conclusion, you can retire from your old job but not from working.
As your friend in the dealings of personal finance, I can only advise you and not force my decisions on you. But an ideal retirement is one where you would rather be doing something that you love and pays than something you don’t enjoy but still pays.
How to go broke after retirement
So this is the part you don’t like but I have to tell you anyway. You can go broke after retirement and they’re so many ways to do that.
You outlive your savings
I don’t want to say you should jump off a cliff when you reach a certain age but you need to make sure you avoid this problem as a retiree. That’s why it’s advisable to plan for a 30 year retirement.
A lot of people are living till the big figures and you need to make sure you’re saving and gathering enough money to sustain yourself.
You spend on impulse
If you spend on impulse then how the heck did you build up your nest egg?! Frugality is a vital part in retirement, if you can’t stop buying everything you see then you’re going to run out of cash easily.
Going to a therapist for it? It’ll cost you. Don’t worry, see it as an investment for your retirement plane.
You don’t (can’t) go back to work
It’s a common issue that hits most retirees. It’s either they can’t go back to work due to some illness or ageism has taken place and it gets harder to get a job as you get older.
I believe that’s where the idea of a business comes in where you can be your own boss and determine whenever you want to stop.
You don’t have emergency funds
Why in the first place won’t you have emergency funds?! Anything can happen at any time. Sudden illness, natural disasters, even new found hobbies can take a huge bite out of your retirement savings. It’s always better to have emergency funds for at least 6 months before entering retirement.
- You get scammed.
- You’re too afraid of stocks.
- You’re too in love with stocks.
- You’re under-insured (one blow and you’re back to the desk)
Retirement is hard planning and dedication. There are a lot of things to consider when planning an early retirement. You would also need to work with a financial advisor to get things sorted out.
Just know that it’s better to pay them for their work than file for bankruptcy when you’re just in the pride of your retirement.